Trading Houses? With the Difficulty in Securing Jumbo Loans Folks are Making Trades.

By mhodges | Published: July 9, 2010

Trading a Home for a Home, or a Boat, or a Plane, or ?

Every Realtor has heard a variation on the story of a buyer coming to them with an offer that goes beyond a creative financing proposal. Occasionally it is a straight trade for property elsewhere but on occasion the buyer might propose a trade for an airplane, a time share plus cash, and in at least one case I know of a race horse. While these deals can certainly be complex, they are becoming more common and may often be the only way a deal that is beneficial to both the buyer and seller can come together. With the increased difficulty in securing financing, well qualified buyers are looking at how they can convert existing assets into cash to make a purchase. With a trade, the buyer forgoes the step of liquidating the asset to create cash for the purchase, and offers the asset instead.

A proposed trade can be advantageous to both parties. In the best case scenario, the seller has a use for the asset. Even without a direct use, there are cases where a seller will prefer the offered asset over the real property they have for sale. For example, an income producing duplex in an urban center might be more attractive to a seller then the remote vacation home they are trying to sell, and rarely use. Even if the seller doesn’t intend to hold the duplex he may opt to accept it in trade based on an analysis that it will sell more quickly given its local market when compared to the market in which the vacation home is located.

Of course there are challenges with a trade deal. Some are obvious; what is the value of the proposed asset? And, some others less so; tax consequences? Is there enough cash in the deal to clear any outstanding loans against the property? If the buyer is offering an asset that is more valuable than the property offered by the seller, can the seller come up with the cash to cover the difference? And, if so, what about the loans if any on the subject property….might they be assumable?

And, A Real World Example of a Seller Willing to Entertain a Trade

My sellers of the property at 13 Long Ridge Trail are a prime example of a seller who would entertain a trade for their property. The sellers purchased the property a number of years ago while based on the east coast. They invested hundreds of thousands of dollars and worked closely with architect Eric Miller on plans and permits for a 5,000 square foot home with an attached 3 car garage and 1,700 square foot barn. The property is located within the Santa Lucia Preserve. An unmatched development where the homes are integrated within the 20,000 acre Preserve in which 95% of the native habitat is protected. It is also the home to an award winning Tom Fazio golf course.

The permits have been pulled to begin construction and Eric is excited to work with the new owners on modifying the plans for their personal tastes.

What Would They Consider in Trade?

This is a nearly ideal situation for a potential buyer hoping to build an estate home and looking to trade into the property. The sellers will entertain offers including real property (residential or income producing) as well as more exotic assets such as collectible cars or an airplane. The seller will entertain offers that include “assets plus cash” to arrive at a purchase price. The seller is a sophisticated and experienced finance officer who would also consider assets of greater value than the subject property with the seller contributing limited cash to close escrow.

If a trade is something you are considering, give me a call to continue the conversation.

Posted in Carmel Valley, luxury, Market Update, The Preserve | Tagged , | Comments closed

The Importance of Pricing- Recent Home Sales in Carmel by the Sea California

By mhodges | Published: July 6, 2010

A Poorly Priced Carmel by the Sea or Pebble Beach Home Can Cost You Money and Time

The table below shows all of the homes that have closed escrow between May 6th and July 3rd 2010 in Carmel, California. I have deleted the addresses from the table so we can focus on pricing as it relates to Days on Market and percentage of Original Price and List Price. I want to avoid a debate about a specific home and whether it was or wasn’t priced right based on location, square footage, etc.  The market spoke on the pricing of each of these homes.

Most Days On Market

If you look at the table and highlight the five homes with the greatest time on market (Days on Market, DOM) they are as follows: 681 days, 518 days, 454 days, 328 days, 228 days. If you then look at the five homes that sold for the greatest percentage below their original list price they match up with one exception.

Days On Market               Sold Price as Percentage of Original List Price

681                                                                  57%

518                                                                  58%

454                                                                 71%

328                                                                 68%

228                                                                 78%

The anomaly:

77                                                                   77%

Regarding the anomaly: this was a bank owned property that was initially incorrectly priced. The bank began adjusting their list price down within 20 days of going on the market and were continuing to drop it when they received an acceptable offer. [I will discuss how banks price their homes in a future post.]

If you exclude the anomaly, these properties sold for an average of 66% of purchase price in 442 days.

Least Days on Market

Now we will identify the properties with the shortest time on the market and see how they fared in terms of percent of original list price.

Days On Market               Sold Price as Percentage of Original List Price

2                                                                    88%

6                                                                  100%

10                                                                100%

11                                                                  93%

14                                                                  98%

These homes sold for an average of 96% of their original list price. And, they sold in an average of 9 days.

The Danger of Across the Market Averages

The ten homes we just discussed (excluding the anomaly) sold for an average of 81% of their list price after 225 days on the market. This statistic is valuable in tracking the trends in a market but is useless in trying to understand how to price a home and establish a strategy for selling it. It doesn’t have much value for buyers either.

As a seller, would you rather sell your home in 9 days and be in a position to negotiate towards 96 of your asking price, or struggle to find a buyer after a year and two months on the market and secure 66% of your original list price?

Posted in Market Update, Uncategorized | Comments closed

The Importance of Properly Pricing a Home to Sell

By mhodges | Published: July 5, 2010

Selling a home in Carmel or Pebble Beach California can be challenging for a number of reasons, not least of which, this is a discretionary market:No one is ever forced to move here. There aren’t companies sending employees here or demanding that people live here to work for them. Many of the homes in our area are second homes.

How Most Home Buyers Approach Carmel and Pebble Beach

Proper pricing of a Carmel or Pebble Beach home is even more important because of the way most buyers enter the market. While it is dangerous to describe anyone as “typical” there are a few commonalities amongst the majority of buyers in our area.

  • They have been here in the past on vacation, to visit a friend, attend a wedding etc.
  • During their visit they started thinking about how great it would be to live here full time or own a second home.
  • Maybe during that visit, or follow on visits, they picked up magazines, attended a few open houses and started to explore the different neighborhoods and communities.
  • Eventually that process (which can take years) lead them to get more serious about looking for a home.
  • And then on their next trip, they dedicated a day or two to work with a Realtor and tour homes with the intent of finding a home and making an offer.

This is where the seller’s pricing decision impacts the buyer.

  • Very few buyers have the luxury to spend endless days looking at homes. They quickly (hopefully working with a Realtor…such as myself) reduce the list  to between five and ten homes to tour and consider.
  • If a home is not correctly priced it won’t make the initial cut!
    • I cannot stress the importance of this fact. If a Realtor has a client in town for a day they will select properties where they expect there is a reasonable chance for a meeting of the minds between their buyer….and you.
    • If you are listed at well above market value and they have no way of knowing what offer you might entertain, what are the odds that they will spend their limited time showing your home to a prospective buyer?
    • Furthermore, even if a Realtor suggests an overpriced home many buyers will strike it from the list with the same logic as above. Why invest the energy in looking at a property that is priced well above what I am willing to pay for it?

There are lots of different ways to depict this reality graphically.

The importance of pricing a home to sellHalf way up the pyramid is the “Market Value” line. As your price moves above this market value, you attract much smaller percentages of prospective buyers, greatly reducing the chance of a sale. Conversely, as you move below market value, you attract a larger percentage of potential buyers.

I realize this may sound theoretical but it is confirmed time and again in national pricing surveys and experience in our local market. My next post will look at a snapshot of sold homes in the last 60 days…..and you will see that there is a real world consequence of pricing in terms of days on market and ultimate sale price.

Posted in Carmel, Market Update, Overall Market, Pricing | Tagged , , , | Comments closed

IPad Post Office Box and Credit Card Issue

By mhodges | Published: May 2, 2010

As a bit of a “first adopter” when it comes to technology I stood in line on Friday to buy a 3G Ipad. There are lots of reasons, but professionally the aspect I am most excited about is being able to call up real time data and maps when out with clients looking at properties. There are lots of communities in the Carmel, Pebble Beach, and Carmel Valley area and often I set out with new clients to look at homes for sale and over the course of the first hour together we revise the criteria based on what they have seen and head off in a different direction. Having the IPad with me will allow me to call up showing instructions, photos, etc. on the fly as we tour.

So, Why the reference to post office boxes in the title? We don’t have street addresses in Carmel and it turns out that AT&T requires a physical billing address in order to activate the 3G phone. There are thousands of folks right now not able to activate the 3G because of this requirement.

This post is aimed at those frustrated souls who are searching the internet for an answer:

When you enter a Post Office Box in “billing address” for AT&T it will “kick you out” and tell you that PO Boxes are not allowed.

Several of us called our credit card companies and changed our “billing address” to our physical address in hopes of making it work. Still we were kicked off, even though the physical address is correct.

This is what appears to be happening:

1. The credit card fraud system is checking the zipcode you entered against the zipcode for your credit card.

2. AT&T is checking YOUR ADDRESS against the US Postal Service database of addresses.

So. If you live somewhere like Carmel and change your credit card info to your legitimate Physical address thinking that will work, it will but ONLY if your physical address is in the USPS database. My address for example, 3SW Santa Fe and 3rd is a real “physical address” which is what AT&T says they want, but it isn’t in the USPS database so they don’t accept it.

Therefore:

1. Make sure the zipcode you enter in the IPAD screen matches your credit card billing zipcode. AND

2. Make sure the physical address is one that the USPS accepts. You can confirm the existence of an address at http://zip4.usps.com/zip4/welcome.jsp

3. In the case of Carmel-by-the-Sea there are NO USPS addresses in 93921, ALL of the 93921 zip is PO Boxes and therefore not acceptable to AT&T.

4. So, I had to pick an address in the nearby zipcode of 93923, change my billing zip code with AMEX and then enter the 93923 address for AT&T. I will now change it back to the real billing address.

I hope this helps everyone else in the same predicament.

Cheers,

Malone

PS. AT&Ts’ explanation is that they need a physical address so they know what city/state etc to send a portion of the taxes they collect.

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Water Stay Lifted on Monterey County Water Use

By mhodges | Published: April 24, 2010

The water situation on the Monterey Peninsula (Carmel, Carmel Valley, Pacific Grove, Monterey, Pebble Beach) is about as clear as mud– so stay with me for a quick synopsis and an update.

  • Cal-Am, the local water company, is violating a number of orders/laws/regulations by “over pumping” the Carmel River. Most of the restrictions have to do with protecting the Steel Head breading that occurs in the river.
  • This over pumping/water shortage is the basis for the existence of the Monterey County Water Management District.
  • This agency is a “super” agency that has authority above the authority of cities or the county when it comes to water usage.
    • For example, you can receive a permit from a city to install a third bathroom which is allowed under the zoning rules of a given property but NOT be allowed to add the bathroom because you have insufficient water credits (or fixture units) and the Water District won’t stamp the permit.
  • To get more of an explanation of how the credit process works, visit www.malonehodges.com/water for an explanation.

So, in November a state wide agency known as the California State Water Resources Control Board issued a Cease and Desist Order that put extreme rationing on the table and ordered Cal Am to not install any new water meters or enlarge water meters for remodel projects.

This was clearly a catastrophe for anyone on the verge of getting a permit to build a home.

Immediately after the issuance of the order a Monterey County Judge issued a stay.

The State Resources board moved to transfer the case to a judge in another county in hopes of getting more sympathy. They succeeded. A Santa Clara county judge this week lifted the stay.

Effectively immediately Cal-Am is under orders to not install new meters. The rationing hasn’t kicked in because our water consumption so far this year is below the limits that trigger rationing.

If you have ever heard of “The Onion” a satirical online newspaper, this story could appear on their pages. Our area uses water well below the national average and well below the average water usage in California. We are extremely sensitive to water usage. There are a number of possible solutions to the water problem, including desalination plants and water reclamation projects. All of which require state approval….from the same state that is inflicting the cease and desist order but has dragged its feet on approving any of the solutions.

If you are considering buying a home in Carmel, Pebble Beach, Carmel Valley or the other peninsula communities and think you might want to add or modify your water fixtures please make sure you understand the water credit system during your contingency period. Request, and understand, what the water fixture report says about your property.

By the way, Pebble Beach has a bit of a unique side story. The Pebble Beach Company has been able to sell water credits from its “bank” for years meaning you could add that third bath, if your home was in Pebble Beach and you could afford to buy the credits. The original intent of the Water Resources Board was to include Pebble Beach but it was “carved out” so those purchased water credits are still valid (and valuable) for the time being at least.

Malone
malone@malonehodges.com
831-601-4740

Posted in Carmel, Carmel Valley, community, Pebble Beach, Water Issues | Tagged , , , , | Comments closed

Carmel-by-the-Sea Home for Sale with “legal subordinate unit,” and What That Means.

By mhodges | Published: March 14, 2010

Carmel has a surprisingly long list of restrictions for a town of only one square mile. Of course, it is that same list of restrictions that assures that Carmel remains a quaint village of small homes with more trees than full time residents.

Most lots in Carmel are 4,000 square feet. Not the house, the lot. These 40X100 lots are sometimes combined into 1 and half lots or double lots and in a couple of rare cases even triple size lots. City zoning does not allow for a guest house or “subordinate unit” on a 4,000 lot. If you are looking for a detached guest house you are going to be looking at larger lots….and with the larger lots comes more total square footage and a big step up in price.

In the 1980s it became clear to city hall that there were a great number of “duplex” homes that were in fact single family homes that had surreptitiously had second kitchens added. Some of these “subordinate units” had been added years before and some were being added as the topic was under discussion at city hall. The city was most concerned about the quality of these remodels as most were being done without permits.

The city elected to offer an amnesty. If residence would inform the city they had a subordinate unit and agree to bring it up to code, the city would allow them to keep the subordinate unit with a few restrictions.

In some cases, as with the house described below, a permitted addition was added to a home and a “utility area” would be transformed into a kitchen sometime months or years after the final inspection. These homes didn’t require any work to bring them up to code. At the other extreme were converted bedrooms with hotplates and overloaded circuits that needed quite a bit of work.

The primary restriction on these units is that only one unit can be rented at any time. As an owner you can live in one part of the home and rent the other. You can lend the “owner’s area” to friends, you can use it as a second home, but you cannot rent it if the remainder of the home is occupied by a tenant.

This property is located in the golden rectangle at 7th Avenue and Casanova. A couple of short blocks to restaurants and coffee shops and a few short blocks to the beach as well.

The east unit is two small bedrooms, a bath, a small office, and kitchen/livingroom. The newer portion of the home, to the west is a one bedroom, one bath, with its own kitchen. Both units have fireplaces and the west unit has a deck.

The property is listed for $1,295,000 and is easy to see. The owner lives in one unit and a tenant in the other. The tenant would love to stay. Give me a call if you would like more information or to arrange for a tour. Malone 831-601-4740

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Mortgage Rates on 15 and 30 Year Fixed Rate Fell for Fifth Week In A Row

By mhodges | Published: December 6, 2009

Rates for prime borrowers with 20 percent down were down again last week.

The 30-year fixed averaged 4.71 percent with an average 0.7 point for the week ending 3 December compared to 5.53 percent a year ago.  The 15 year fixed rate averaged 4.27 percent with an averate 0.6 point compared to 5.77 a year ago.  The 15 year rate has never been lower in the years since Freddie Mac started tracking them in 1991.

I believe a key component of these low rates has been the Federal Reserve program to purchase up to $1.25 trillion in mortgage backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae. It is important to note that the program is winding down towards the end of March 2010. The Fed is gently reminding all of us that the program is going away, information we would be wise to keep in mind.

The Mortgage Bankers Association projects 30 year fixed mortgages will hit 5.4 percent in 2010, 6 percent in 2011, and 6.3 percent in 2012.

Headline writers will have to come up with something other than “historic lows” to describe interest rates over the next few years.

Posted in Loans and Lending | Comments closed

FHA Loan Underwriting Standards will Tighten in 2010

By mhodges | Published: December 6, 2009

Although FHA loans aren’t that common in Carmel and Pebble Beach, they are playing a role in other lower priced areas such as Seaside, Marina, and Salinas. Having said that, two of my recent transactions in Carmel-by-the-Sea have included FHA loans because the “cost of money” under the FHA loan was such that the buyer’s opted for the loan even though they could have paid cash.

While the exact changes that will be coming are still being debated, it is likely that the minimum down payment for FHA loans will increase, the minimum FICO scores for new borrowers will go up, and probably the maximum seller concessions will be reduced from 6 percent to 3 percent.

The minimum FICO score for FHA backed loans was raised from 500 to 580 earlier this year although most lenders actually set their minimums at higher levels usually around 620.

FHA’s move to tighten requirements is partly in response to the continued tightening of guidelines by Fannie Mae and Freddie Mac. Fannie Maie will implement a minimum 620 FICO score along with other tightening requirements next week.

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Pebble Beach Real Estate Ranking in Forbes 500

By mhodges | Published: September 15, 2009

Last week Forbes published their “by zip code” analysis of the most expensive zip codes. As expected, the median price of homes for sale in most zip codes fell over the last year.

A year ago California accounted for 96% of the top zip codes, this year…less than 50%. Of the California zip codes still on the 500 most expensive zip codes, 83% had median prices that stayed the same or declined.

Pebble Beach

Pebble Beach experienced an 8% decline in median price from the previous year with a ranking of 42 on the most expensive zip codes list. While this number gives a general idea of the health of the Pebble Beach market digging a bit deeper offers more insights.

median-price-pebble-beach

First, Pebble Beach is a relatively small market, with properties of drastically different size, location (views and proximity to golf courses etc,) and list prices, that the addition or removal of a couple of homes can skew statistics dramatically. Nevertheless, one can see the trends. The graph below compares the last 12 months with the previous 12 months.

median-price-comparison2

Even more dramatic than the recent trends in pricing is the continuing increase in average days on the market for Pebble Beach homes.

average-days-on-mkt-pb1

If you break down the average days on market, not surprisingly, you see that the higher end homes are taking the longest to sell. The average days on market for the most expensive quartile (the top 25% of homes by price) is just under 300 days. The lowest quartile of Pebble Beach homes (the least expensive) is averaging 220 days on the market.

average-days-by-quartile-pb

Percent with a Price Decrease

Pebble Beach, and markets like it, tend to have more sellers that are able to withdraw from the market and “wait for a better day” or hold more firmly to a list price than other markets where seller’s are running out of resources to hold on.  The graph below shows the percentage of homes on the market, at each point in time, that have experienced a price reduction from their initial list price. It is interesting to note that the lowest percentage of price reductions is among the highest priced homes.

price-decrease-pb

Forbes observed in the article,

“Potential buyers increasingly fall into one of two categories: Those who have seen their net worths damaged by the financial crisis and those who realize they could probably get a better deal in a year’s time.”

I concur with their opinion. I also believe, as do they, that the lack of liquidity in the credit market for the high value mortgages that are often needed to buy these homes has had a huge impact. I have clients that are supremely qualified that have gone through loan processes that required hours of document collection and multiple appriasals and reviews. It is clear that lenders would much prefer to make 5 smaller loans than 1 large one.

We need credit to flow again to bridge the gap between ready and willing buyers and sellers.

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Carmel Realty Company

By mhodges | Published: September 11, 2009

Years ago, when I first became a Realtor, I considered all of the real estate brands in Carmel and Pebble Beach. I ultimately joined The Mitchell Group, a locally owned brokerage that defined the high end market in terms of the properties they represented and the level of service they provided to their clients.

The Mitchell Group was purchased by Sotheby’s International, a Realogy and NRT brand. NRT is the nation’s largest residential real estate brokerage firm. Realogy (the parent of NRT) owns Coldwell Banker, Century 21, Better Homes and Gardens, ERA, and Sotheby’s as well as a few others.

I was very successful at Sotheby’s, ultimately becoming one of the top 5 Sotheby’s agents on the Monterey Peninsula and in the top 2% of all NRT agents, everywhere. I enjoyed working with my colleagues at Sotheby’s, most of whom like me were former Mitchell Group agents. There are certain upsides to being part of a large organization, but I believe real estate is ultimately a service provided person to person, and that highly personalized service is the key to my success.

When the opportunity came up to join, and help build, an organization that shares my philosophy I took it. I have joined Carmel Realty Company.

 

 

Carmel Realty has been selling real estate in Carmel, Pebble Beach and on the Monterey Peninsula since 1913. When the Mitchell family sold the Mitchell Group to Sotheby’s, the family retained ownership of Carmel Realty and focused the Carmel Realty brand on property management. Carmel Realty manages the highest end vacation rental homes on the Peninsula, including more estate homes in Pebble Beach and Scenic Avenue homes in Carmel than any other agency. Carmel Realty places visitors from all over the world in our area’s most prestigious properties.

The owners of Carmel Realty and a group of like minded highly successful agents, including myself, believe our clients deserve highly personalized service from a company that is collaborative. A company that utilizes the best technology, understands the importance of effective marketing in print and on-line, and is able to move quickly and respond to the new market realities.

We are a group of successful and committed agents with a shared vision of quality service that, honestly, our clients deserve and should expect.

Building on that shared vision, Carmel Realty is again a full service Real Estate Brokerage.

If you would like to learn a bit more about Carmel Realty and how we represent our clients, give me a call on my cell phone at 831-601-4740 or send an email to malone@malonehodges.com

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